Details of the agreement involving the long-awaited service were not immediately clear, but it comes after Prime Minister Benjamin Netanyahu pledged steps to ease tensions in the occupied West Bank, gripped by weeks of violence.
Talks on 3G mobile have dragged on for years, with Israel having so far blocked Palestinian mobile companies' access to the necessary frequencies.
The Israeli defence ministry unit that manages civilian affairs in the occupied territories announced the "memorandum of understanding" and said it had been signed with Palestinian civil affairs minister Hussein al-Sheikh.
"The decision was made after examination by the security establishment and the completion of professional staff work with the Israeli ministry of communications," it said.
The lack of 3G access and its data capacity has been seen as a significant brake on the Palestinian economy.
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Netanyahu, in his meeting with US President Barack Obama on November 9, was said to have spoken of measures aimed at easing tensions after a wave of Palestinian gun, knife and car-ramming attacks that began in October.
Israel's response to the violence has at times been controversial, such as the demolition of suspected attackers' homes and allegations of excessive force in the killings of some alleged assailants.
On Tuesday, Israel banned the radical wing of the country's main Islamist organisation, accusing it of having instigated violence at a sensitive Jerusalem holy site that preceded the recent wave of unrest.
Some questioned whether the ban would further stoke tensions and also harm legitimate political debate.
Violence since October 1 has killed 84 people on the Palestinian side, including one Arab Israeli, as well as 12 Israelis.
Many of the Palestinians killed have been alleged attackers, while others have been shot dead in clashes with Israeli security forces.